Chinas public firms get new tool to shore up profits

Jan 4 | Updated: Jan 5 2006, 05:30am hrs
Chinas public companies, among the worlds worst stock market performers in 2005, start the year with a new tool: stock incentives to improve profits and governance. Incentive programs, involving up to 10% of a companys stock, have been allowed since Jan. 1, the China Securities Regulatory Commission said in a statement on its website on Wednesday. That was the level suggested in a draft rule published last year. Both shares and options can be used. A sound mechanism of stock incentives can fully mobilise the management, putting together the interests of shareholders, companies and individuals, the regulator said in the November draft. The Shanghai and Shenzhen indexes dropped by 6% and 9.5% respectively last year, the fourth and third worst performers of 78 stock benchmarks tracked globally by Bloomberg. Average per-share earnings at the nations 1,380 public companies dropped 8.5 percent for the first nine months of 2005 from a year earlier, the Shanghai Securities News reported on Oct. 31.

Incentive programmes - which can be for directors, supervisors, senior executives or other employees should be carried out only by companies that have disposed of non-tradable stock, the statement today said. The Chinese government has implemented a program to convert about $210 billion of non- tradable, mostly state-owned, holdings into common stock that can be traded.